Chinas pharmaceutical sector has maintained steady growth over the past few years (see Figure 1).  Recent statistics showed that total revenue for the Chinese pharmaceutical industry reached $54.6 billion (437.3 billion RMB) in 2005, a 25.8% increase over 2004.  The industrys prosperity has given birth to domestic outsourcing segments, such as contract manufacturing and contract research. Expansion of Contract Research Organizations (CROs) is in turn fueling the growth of Chinas pharmaceutical industry and enhancing opportunities for international collaboration.
Dennis Gillings, CEO of Quintiles Transnational, acknowledged the growth of China's domestic pharmaceutical market at the Boao Forum for Asias World Pharmaceutical Industry Conference in Taizhou. "China...today accounts for a small part of the value of the pharmaceutical and biotechnology industries relative to their huge population, he said. [They] will grow their share of pharmaceutical market value many times by 2030... CROs can help pharmaceutical companies develop drugs for marketing approval in China.
Contract manufacturing was one of the first growth areas in Chinese pharmaceuticals. Since the early 1990s, an increasing number of Chinese Contract Manufacturing Organizations (CMOs) have engaged in Active Pharmaceutical Ingredient (API) production, and many are endeavoring to meet international production standards for finished drugs. In 2004, Chinese CMOs generated RMB 60 billion (US $7.5 billion) domestic output,  which accounted for 13% of the countrys gross pharmaceutical outputnot an insignificant figure considering contract manufacturing is still young in China. According to statistics released by China Customs, Chinas API export value achieved US $7.9 billion in 2005, a 27.6% increase over 2004. This was attributed primarily to the outsourcing businesses associated with some large API CMOs, including Zhejiang Hisun, Suzhou Lederle, Shandong Xinhua Pharma and Shandong Meiji Lukang Pharma.
Quickly following the expansion of CMOs, CROs first emerged in China in the mid-1990s, when several of the worlds leading CROs established a presence in Beijing. Contract research has experienced explosive growth since then, and today China is home to more than 300 CROs of all sizes.  This growth has been fueled by demographic changes and economic trends, as well as recognition of the opportunities associated with a market whose potential has been estimated at up to 8 billion RMB (US$1 billion). The future of this industry and the problems associated with such rapid growth are now being addressed by the Chinese government, the industry and trade associations.
China is becoming a hot location for global outsourcing of pharmaceutical projects, observed Xiaoming Zhou, president of the China Chamber of Commerce of Medicines & Health Products Exports & Imports. Addressing the Boao Pharmaceutical Forum in Taizhou recently, he said, China has an edge in low labor costs raw materials and energies, and [our] facilities are very competitive. In addition, China has a strong team of high-caliber research professionals. 
Emergence of CROs in China
Contract research originated in the U.S. in the 1980s and quickly became popular throughout the world. Presently, CROs are playing an indispensable part in global biotech and pharmaceutical initiatives. Recent surveys suggest global CRO revenues reached $16.3 billion in 2005, up 14% from $14.3 billion in 2004. The U.S. and Europe comprise 88% of the global CRO market. So despite its rapid growth, Chinas industry still accounts for just a small percentage of the worldwide market.
Over the past decade, the global average cost to develop a new drug has risen sharply. As a result, more Western pharmaceutical companies are considering Asia, especially China, as part of their supply chain strategy. In the U.S., the cost of drug development has been increasing, while the number of new drugs successfully developed each year has been decreasing. This phenomenon has pushed U.S. pharmas to seek new resources. The cost of drug development in China is 20% of that of in U.S.  and many other countries. Thus, U.S. firms are evaluating CROs in China to improve their efficiency and take advantage of lower drug development costs.
In China, the environment for pharmaceutical firms experienced tremendous changes in the late 1990s. Prior to that time, pharmaceutical R&D was dominated by government-owned research institutions. Pharmaceutical companies did not have the capability to develop new drugs or conduct pre-clinical research or clinical trials. In 1998, Chinas State Drug Administration (SDA, later the SFDA) was established, and it soon amended and reissued a series of laws and regulations to enhance drug examination, inspection and supervision.
Thanks to the ongoing reform of scientific research systems, most pharmaceutical development is now transitioning to Chinese pharmaceutical companies. These entities have provided the fundamental conditions for the emergence of CROs. Particularly, in September 2003 the SFDA issued a new edition of Good Clinical Practice (GCP), which stipulated for the first time in China that CROs may conduct clinical trials on behalf of their clients. The new GCP also formally clarified the definition of CRO. 
After Chinas entry into the World Trade Organization (WTO) in 2001, the Chinese government was obliged to put Intellectual Property (IP) protection high on the agenda. The government has been making sustained efforts to address the existing IP problems and increase IP protection, while funding research institutes and encouraging pharmaceutical companies to develop innovative drugs.
Since the regulatory and business climate began to improve in the late 1990s, global CROs have begun to establish a presence in China. In 1996, MDS Pharma Services first set up a branch company in Beijing, becoming the first foreign-based CRO to operate in China. Following that, other leading CROssuch as Quintiles Transnational, Covance and Kendlesalso entered the Chinese market. The central labs in Beijing affiliated with MDS and Quintiles are the only two labs in China that have obtained accreditation from the College of American Pathologists (CAP).